Pfizer 2006 Annual Report Download - page 26

24 2006 Financial Report
Financial Review
Pfizer Inc and Subsidiary Companies
Substantially all of our restructuring charges in connection with
the Pharmacia acquisition were completed through December
31, 2005 and we recorded, in total, $1.2 billion by that date into
the income statement. These restructuring charges were associated
with exiting certain activities of legacy Pfizer and legacy Pharmacia
(from April 16, 2004), including severance, costs of vacating
duplicative facilities, contract termination and other exit costs. As
of December 31, 2006, liabilities for these restructuring charges
incurred but not paid totaled $77 million and are included in
Other current liabilities.
The majority of the restructuring charges related to employee
terminations (see Notes to Consolidated Financial Statements—
Note 5B. Acquisition-Related Costs: Restructuring Charges—
Pharmacia). Through December 31, 2006, employee termination
costs totaling $592 million represent the approved reduction of
the legacy Pfizer and legacy Pharmacia (from April 16, 2004)
work force by 4,255 employees, mainly in corporate,
manufacturing, distribution, sales and research. We notified
affected individuals and 4,005 employees were terminated as of
December 31, 2006. Employee termination costs include accrued
severance benefits and costs associated with change-in-control
provisions of certain Pharmacia employment contracts.
Other (Income)/Deductions—Net
In 2006, Pfizer recorded a charge of $320 million related to the
impairment of our Depo-Provera intangible asset. In 2005, Pfizer
recorded impairment charges of $1.1 billion related to the
impairment of our Bextra intangible asset. In 2004, we recorded
an impairment charge of $691 million related to the Depo-Provera
brand and a litigation-related charge of $369 million related to
Quigley Company, Inc., a wholly-owned subsidiary of Pfizer. See
also Notes to Consolidated Financial Statements—Note 6. Other
(Income)/Deductions—Net.
Provision/(Benefit) for Taxes on Income
Our overall effective tax rate for continuing operations was
15.3% in 2006, 29.4% in 2005 and 18.4% in 2004. The lower tax
rate in 2006 is primarily due to tax benefits related to the
resolution of a tax matter, a change in tax regulations and a
decrease in the 2005 estimated U.S. tax provision related to the
repatriation of foreign earnings, all as discussed below, and the
impact of the sale of our Consumer Healthcare business. The
higher tax rate in 2005 was attributable to the previously
mentioned tax charge associated with the repatriation of foreign
earnings and higher non-deductible charges for acquisition-
related IPR&D, primarily relating to our acquisition of Vicuron and
Idun in 2005, partially offset by the tax benefit of $586 million
related to the resolution of certain tax positions.
In the first quarter of 2006, we were notified by the Internal
Revenue Service (IRS) Appeals Division that a resolution had been
reached on the matter that we were in the process of appealing,
related to the tax deductibility of an acquisition-related breakup
fee paid by the Warner-Lambert Company in 2000. As a result, we
recorded a tax benefit of approximately $441 million related to
the resolution of this issue.
On January 23, 2006, the IRS issued final regulations on Statutory
Mergers and Consolidations, which impacted certain prior-period
transactions. In the first quarter of 2006, we recorded a tax benefit
of $217 million, reflecting the total impact of these regulations.
In the third quarter of 2006, we recorded a decrease to the 2005
estimated U.S. tax provision related to the repatriation of foreign
earnings, due primarily to the receipt of information that raised
our assessment of the likelihood of prevailing on the technical
merits of a certain position, and we recognized a tax benefit of
$124 million.
In 2005, we recorded an income tax charge of $1.7 billion, included
in Provision for taxes on income, in connection with our decision
to repatriate approximately $37 billion of foreign earnings in
accordance with the American Jobs Creation Act of 2004 (the Jobs
Act). The Jobs Act created a temporary incentive for U.S.
corporations to repatriate accumulated income earned abroad by
providing an 85% dividend-received deduction for certain
dividends from controlled foreign corporations in 2005. In
addition, during 2005, we recorded a tax benefit of $586 million,
primarily related to the resolution of certain tax positions.
Discontinued Operations—Net of Tax
For further discussion about our dispositions, see the “Our
Strategic Initiatives—Strategy and Recent Transactions:
Dispositions” section of this Financial Review. The following
amounts, primarily related to our Consumer Healthcare business,
have been segregated from continuing operations and included
in Discontinued operations—net of tax in the consolidated
statements of income:
YEAR ENDED DEC. 31,
_______________________________________________
(MILLIONS OF DOLLARS) 2006 2005 2004
Revenues $ 4,044 $3,948 $3,933
Pre-tax income 643 695 563
Provision for taxes on income
(a)
(210) (244) (189)
Income from operations of
discontinued businesses—
net of tax 433 451 374
Pre-tax gains on sales of
discontinued businesses 10,243 77 75
Provision for taxes on gains
(b)
(2,363) (30) (24)
Gains on sales of discontinued
businesses—net of tax 7,880 47 51
Discontinued operations—
net of tax $ 8,313 $ 498 $ 425
(a)
Includes a deferred tax expense of $24 million in 2006 and $25
million in 2005 and a deferred tax benefit of $15 million in 2004.
(b)
Includes a deferred tax benefit of $444 million in 2006, and nil in
2005 and 2004.